Genesis Trading Pauses Lending: Crypto Brokerage Updates

  • December 6, 2022
  • 10 Min Read

On November 10th, Genesis revealed their derivatives business had $175 million in locked funds with the now-shuttered FTX crypto exchange.

This page is intended as a living document to chronicle events related to Genesis Trading, the potential effects on other market players, and what these events may mean for the broader crypto market.

Genesis Trading - Events Timeline

JAN 23: Genesis details bankruptcy plan in court hearing. In the first hearing since filing for Chapter 11 bankruptcy protection, attorneys for Genesis detailed aspects of the company's bankruptcy plan, including the planned sale of assets and an expectation to exit bankruptcy by May 19. In separate statements, Sean O'Neal, attorney for Genesis, and Brian Rosen, attorney for a creditor group with $1.5 in claims, spoke optimistically about reaching an agreement to resolve Genesis' liability to the group.

JAN 20: Genesis submits its bankruptcy plan. Genesis submitted its bankruptcy plan to the court in an 83-page filing detailing which creditors were impaired and unimpaired. Impaired creditors, including Gemini, are now eligible to vote on the plan. Impairment refers to a payment of less than the amount owed before filing for bankruptcy protection.

JAN 19: Genesis files for Chapter 11 bankruptcy. Following months of industry speculation, Genesis Global Holdco, LLC filed for Chapter 11 protection in a Manhattan court. The filing also extends to Genesis Global Capital, LLC and Genesis Asia Pacific Pte. Ltd. The filing lists $765,900,135 in liabilities to the creditors' group that includes Gemini trading, an amount listed as "disputed" in the filing. Cameron Winklevoss, a co-founder of Gemini, responded in a tweet thread, stating the bankruptcy does not insulate Barry Silbert or DCG from accountability.

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JAN 18: Bankruptcy filing possibly near for Genesis. Creditors of Genesis are reportedly negotiating a Chapter 11 (reorganization) bankruptcy filing for Genesis. Terms of the possible filing are said to include a forbearance period of up to two years, cash payments, and equity positions in DCG, the parent company of Genesis.

JAN 17: Digital Currency Group suspends shareholder dividends. In a letter to DCG shareholders, Genesis parent company DCG announced it would suspend dividends to shareholders in the company as part of a strategy to reduce expenses and preserve liquidity.

JAN 12: SEC sues Genesis and Gemini for the sale of unregistered securities. Gemini had partnered with Genesis to provide a yield product (Gemini Earn) for Gemini users. The SEC, in its lawsuit, seeks an injunction against both companies to prohibit sales of unregistered interest-bearing products as well as civil penalties.

JAN 10: Cameron Winklevoss of Gemini accuses Genesis and DCG of defrauding Gemini Earn customers. In a blistering open letter, Cameron Winklevoss detailed his take on the chain of events that led to Genesis owing $900,000 to the Gemini Earn program. In the letter, Winklevoss accused Genesis of misrepresentations regarding operating capital and went on to allege accounting fraud in the way Genesis characterized the $1.1 billion promissory note between Genesis and parent company DCG.

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JAN 6: Possible federal investigation into intercompany loans at DCG. A Bloomberg report citing unnamed sources familiar with the matter stated that federal prosecutors are investigating loans between Genesis and its parent company DCG and how the company represented the loans to investors. The report also said the investigation began before the collapse of FTX.

JAN 5: Genesis lays off 30% of its workforce. Following a workforce cut of 20% in mid-2022, Genesis again reduced its headcount by 30% in Jan 2023.

JAN 5: DCG shutters its wealth management division. On Jan 5th, DCG confirmed that the company is winding down its HQ wealth management division which had $3.5 billion in assets under management as of December 2022.

JAN 2: Barry Silbert responds to an open letter from Cameron Winklevoss. In a Twitter response to the open letter from Gemini’s co-founder, Barry Silbert insists that DCG did not borrow $1.675 billion from its Genesis subsidiary but that DCG is current on all loan payments to Genesis (borrowed amounts not specified). Barry Silbert also stated that DCG had sent a proposal to Gemini’s advisors on DEC 29, which had not yet received a response.

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JAN 2: Cameron Winklevoss, Gemini co-founder, publishes an open letter to Barry Silbert of DCG. In a widely discussed tweet with over 8 million views, Cameron Winklevoss asked Barry Silbert to resolve the $900 million owed to Gemini by Genesis or commit to in-person discussions by Jan 8th, 2022. The letter discussed a $1.675 billion loan from Genesis to DCG, which Cameron Winklevoss alleged could have been used to pay creditors. Instead, DCG used the money to fund share buybacks and other activities within DCG’s companies, according to allegations in the open letter.

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DEC 20: Houlihan Lokey presents plan to resolve liquidity issues at Genesis Trading and DCG. This plan would offer a path to recovery of assets for the various creditor groups, and was based upon information provided by Genesis, DCG, and their affiliated advisors. Houlihan Lokey expects a response by Dec 23.

DEC 19: Grayscale floats tender offer idea in an investor letter. Michael Sonnenshein, CEO of Grayscale (a sister company to Genesis) discussed potential options for the company’s Bitcoin trust if attempts to convert the trust to an ETF are unsuccessful. Among these options is the possibility of a tender offer for up to 20% of the fund’s value that would allow shareholders to sell their shares for a fixed price. Currently, shareholders can buy and sell in secondary markets where shares trade at about 50% of the fund’s net asset value.

DEC 17: Houlihan Lokey advocates on behalf of the creditors’ committee. Crypto exchange Gemini reports that financial advisor Houlihan Lokey has begun advocating for a plan that could help Genesis navigate liquidity issues. The plan seeks the recovery of funds owed by Genesis to committee-member creditors.

DEC 17: European exchange Bitvavo named as a Genesis creditor. Now part of a creditors’ committee including Gemini, which is owed a reported $900 million, Bitvavo seeks $296 million owed to the European crypto exchange. Kirkland & Ellis acts as legal counsel for the committee and Houlihan Lokey, a global investment bank, has taken a financial advisor role.

DEC 16: Sharp selloff in DCG-held assets: Several tokens reportedly held by DCG, including FIL, ZEN, ETC, and NEAR experienced a steep selloff, fueling speculation that DCG was selling assets to raise capital.

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DEC 15: Genesis is now part of FTX creditors’ committee. Court filings show that the US Justice Department has named Genesis Trading as part of a nine-member creditors committee in the FTX bankruptcy case. Government-appointed panels such as this are typically comprised of the largest creditors and help courts determine payout strategies in large bankruptcies.

DEC 7: Genesis says outcome may take weeks. In an email statement to clients, Genesis Interim CEO Derar Islim explained that the path forward for Genesis could take weeks to determine rather than days. The company continues to work with its own advisors as well as law firms representing several client groups.

DEC 6: Gemini launches an updates page. The dedicated page on its website will provide regular updates to Earn users concerning the funds they’re owed. Gemini says it'll update the page on Tuesday and Friday of each week at minimum until it reaches a final resolution with Genesis.

DEC 6: DeFi investment platform Donut aligns with major Genesis creditors. Donut teamed up with two other large creditors, all of which account for $2 billion owed by Genesis. They jointly hired investment bank Houlihan Lokey to negotiate a resolution or potential restructuring.

DEC 3: Gemini seeks to recover $900 million from Genesis Trading. Crypto exchange Gemini, which had partnered with Genesis to power Gemini’s Earn program, says it is trying to recover nearly $1 billion in funds.

NOV 29: Genesis creditors team to prevent bankruptcy. Bloomberg reports that two groups of creditors to Genesis have hired restructuring attorneys, with one group working with Proskauer Rose and the other group seeking advice from Kirkland & Ellis.

NOV 22: Genesis's parent company, DCG, owes Genesis $575 million. In a letter to shareholders, Digital Currency Group CEO Barry Silverman says DCG borrowed nearly $600 million from its subsidiary, Genesis.

NOV 22: Genesis states no imminent plans for bankruptcy. In an email statement reported by Fortune and Bloomberg, a Genesis representative states, “We have no plans to file bankruptcy imminently.”

NOV 21: Genesis reportedly warns of bankruptcy without additional funding. A Bloomberg article citing people familiar with the situation reports that Genesis may have to file for bankruptcy if efforts to raise capital fail.

NOV 21: Genesis seeks additional funding. The Wall Street Journal reports that Genesis has reached out to both Binance and Apollo Global Management for investment funding or to make a bid for Genesis’ loan assets. Binance reportedly declined. An earlier WSJ report pointed to a “liquidity crunch due to certain illiquid assets on its balance sheet.”

NOV 16: Genesis hires advisors. In a tweet, Genesis says they have “hired the best advisors in the industry to explore all possible options.” The company promises to deliver a plan for the lending business in the coming week. There have been no additional announcements from the company’s Twitter account since that time.

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NOV 16: Genesis halts redemptions at its lending unit. In a tweet, Genesis announces it has suspended redemptions and new lending in its lending business. A simultaneous seven-minute client call details liquidity challenges.

NOV 16: Gemini halts redemptions from its Earn program. Gemini, a well-known crypto exchange, pauses redemptions in its Earn program, in which the exchange had partnered with Genesis to provide yield products.

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NOV 11: FTX files for bankruptcy. One day after Bahamian authorities freeze assets of FTX, CEO Sam Bankman-Fried tweets that FTX, FTX.US, and Alamada have all filed for bankruptcy.

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NOV 10: Genesis reveals $175 million in locked funds. In a tweet, Genesis discloses that its derivatives business had $175 million held on the now-shuttered FTX exchange. The company states the inaccessible funds are not material to daily business operations.

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NOV 8: FTX freezes withdrawals. With a reported $6 billion withdrawn from the exchange in 72 hours, FTX freezes withdrawals. In the following days, only limited redemptions are allowed in the Bahamas, where FTX is headquartered. By the 10th, Bahamian officials have frozen FTX assets.

NOV 6: Selling pressure mounts for FTT token. Due in part to an (in)famous tweet from Binance CEO CZ, stating Binance was liquidating its sizable FTT position, selling pressure builds driving the FTT token price down. The move decimates the mark-to-market value of Alameda, also driving a run of withdrawals at the FTX exchange.

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NOV 2: Coindesk reports on leaked Alameda balance sheet. The FTX collapse begins. Coindesk publishes an article detailing a leaked balance sheet for Alameda Research, sister company to FTX. Details highlight that Alameda’s assets are largely comprised of FTT, a token minted by FTX.

OCT 1: Genesis business volume falls. Figures from Genesis’ Q3 2022 Market Observations Report show a sharp fall in volume versus Q2, with loan originations plummeting from $40.4 billion to $8.4 billion. The company held just $2.8 billion in active loans at the close of the third quarter, with its trading and derivatives businesses also seeing sharp declines.

AUG 17: Genesis CEO steps down. Genesis CEO Michael Moro leaves his post at the same time that the company slashes its workforce by 20%. Chief Operating Officer Derar Islim is named as interim CEO.

JULY 18: Genesis files a billion-dollar claim against 3AC. In a 1,000+ page court filing, Genesis files a $1.2 billion dollar claim against Three Arrows Capital, according to DCG-owned Coindesk. DCG then reportedly assumed the claim, converting it to a $1.1 billion promissory note from Genesis due in 2032.

JULY 7: Three Arrows Capital files for emergency relief with SDNY bankruptcy court. Three Arrows Capital filed a Chapter 15 bankruptcy case asking for recognition in the US of foreign bankruptcy proceedings in the British Virgin Islands, where 3AC is headquartered. A BVI court ordered the liquidation of 3AC assets in June.

JULY 6: Three Arrows Capital confirmed as Genesis counterparty. In a tweet thread, then-CEO of Genesis Michael Morrow discloses that Three Arrows Capital (3AC) was a loan counterparty that had failed to meet margin requirements. Genesis sold the collateral for the loan reported to originally be $2.36 billion, leaving an unsecured balance of $1.1 billion.

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JUNE 17: Genesis CEO confirms large loan loss. Genesis CEO at the time discloses a loan loss with a large unnamed counterparty. Figures are not disclosed.

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Genesis Trading Overview

With a history dating back to 2013, Genesis Global Trading grew to become a leading crypto trading and lending platform for institutional investors. 2021 marked the firm’s peak, reaching over $116 billion in crypto spot trades, more than $130 billion in loan originations, and nearly $54 billion in derivatives trades, as reported in the Q4 2021 Market Observations Report.

One of several companies under the Digital Currency Group (DCG), which includes crypto industry giants such as Coindesk and Grayscale, Genesis defined growth in the crypto space, posting a stunning 812% growth from 2020 to 2021 in its derivatives trading alone.

Moving forward to 2022, Genesis disclosed its exposure to Three Arrows Capital, a multi-billion dollar crypto hedge fund headquartered in Singapore, which itself suffered substantial losses in the fallout surrounding the collapse of Terra Luna.

Combined loan losses involving defaults by Three Arrows Capital, now in bankruptcy proceedings, and Babel Finance, a Hong Kong lender widely reported as another counterparty, reached hundreds of millions, according to early reports. Babel Finance is not mentioned in Genesis’ quarterly reports.

These reports understated the full financial impact. Genesis has since filed a claim against Three Arrows Capital for $1.2 billion, a claim that its parent company DCG assumed, swapping it for a promissory note.

Parent company DCG quickly shuttled $140 million to subsidiary Genesis a day later. While Genesis initially assured customers and the crypto community that the locked funds had no effect on daily operations, several reports indicate the company is seeking up to $1 billion following liquidity challenges due to a wave of withdrawals.

Genesis has since halted redemptions and new loans at its lending division.

The Genesis Trading story reaches far beyond Genesis itself, potentially putting parent DCG in jeopardy and risking additional contagion with other firms or projects that may have exposure.

The Tipping Point

Coindesk, owned by DCG, was the first news outlet to break the story about Alameda’s balance sheet and the trading firm’s heavy reliance on the FTX-minted FTT token as a prominently listed asset. When the story broke, many within the industry didn’t know exactly what to make of it, while others saw confirmation that both FTX and Alameda had built their trading empire on a shaky foundation. The FTT token was thinly-traded, leading to questions about its mark-to-market value.

Just four days after the Coindesk story, Binance CEO Changpeng Zhao (CZ) tweeted, saying that Binance would liquidate their FTT position, reportedly valued at about $500 million. The following surge in withdrawals at FTX led to a liquidity crisis that ultimately resulted in bankruptcy filings for both FTX Trading and Alameda Research, along with the US subsidiary, FTX.US.

The FTX story seems like an aside, but it’s a story of contagion as we learn how many players in the space are financially linked, passing balance sheet woes and insolvency fears to trading partners and affiliated companies.

We later learned that Genesis’ derivatives trading arm had $175 million in funds locked up in FTX. Despite assurances by Genesis that the setback “does not impact our market-making activities,” Genesis was next to see a wave of withdrawals. A $175 million impairment quickly became an urgent search for $1 billion in funding to meet the growing liquidity crunch.

The story comes full circle, as an honest act of journalism by DCG-owned Coindesk marked the beginning of a crypto-market avalanche that threatens to collapse DCG-owned Genesis under its weight.

Why Do Genesis Trading and Parent DCG Matter to Crypto?

DCG has investments throughout the space, including many of the biggest names in the crypto space.

In total, DCG’s investment portfolio tops 160+ companies and crypto projects.

  • Bitgo
  • Chainalysis
  • Circle
  • Coinbase
  • Etherscan
  • eToro
  • FTX
  • Genesis
  • Grayscale
  • Kraken
  • Ledger
  • Ripple

These and dozens of other companies and projects grew with investments from DCG. Many in the industry believe that a bankruptcy of Genesis would also put Digital Currency Group in peril.

DCG, valued at $10 billion in 2021, is among the most valuable privately held companies in the crypto arena. But the company’s valuation only tells part of the story.

Digital Currency Group also owns Grayscale Investments, the world’s largest crypto fund, best known for its Bitcoin Trust (GBTC). The trust holds 635,000 Bitcoin, per the latest 10-Q, and allows investors to buy into the trust without buying Bitcoin itself. Currently, the trust trades at about a 40% discount to its net asset value (NAV), meaning the fund is valued at less than the Bitcoin held by the trust.

Share price declines reflect skepticism about how the situation with Genesis, and DCG by extension, will play out in the near future. Much like the wave of withdrawals seen with Genesis, GBTC is seeing a run on the bank.

There has also been speculation over whether Grayscale has the crypto assets it reports. In response, Grayscale shared documents from Coinbase Custody Trust Company detailing the holdings.

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Some fear that DCG may have to liquidate Grayscale assets, placing price pressure on a wide range of crypto assets marketwide. Others look at the investment fee income from Grayscale and question whether Grayscale, as a separate business, would be impacted by a Genesis insolvency.

The Bitcoin trust charges a management fee of 2% of assets under management and has seen new institutional investments, such as Ark’s recent buy for $2.8 million. Arguably the earning engine of the Digital Currency Group, Grayscale offers several crypto-related trusts, each with similar fees.

From another perspective, Genesis’ future may not be intrinsically linked to DCG. If Genesis has to file for bankruptcy, DCG may be able to keep moving forward.

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